Blackbeard's demand functions for grog, , and bread, 2, are (if his income and the goods'...

Transcribed Image Text:

Blackbeard's demand functions for grog, ₁, and bread, 2, are (if his income and the goods' prices are such that he buys positive quantities of both goods): x = M+P₁+P₂ M+P₁ P2 and ₂ 2p1 x = M-P1-P₂ 2p2 (Aside: As an exercise, you can show that these are indeed the demand functions if Blackbeard's utility function is: U(x1, x2) = (x₁ - 1)(x₂ + 1).) Given Blackbeard's demand functions, which of the following statements are correct? (Note: Multiple answers may be correct.) If the price of grog, P₁, rises high enough (and nothing else changes), Blackbeard will stop buying grog, 1, completely. If the price of bread, p2, rises high enough (and nothing else changes), Blackbeard will stop buying grog, 1, completely. If the price of grog, P₁, rises high enough (and nothing else changes), Blackbeard will stop buying bread, 2, completely. If the price of bread, p2, rises high enough (and nothing else changes), Blackbeard will stop buying bread, #2, completely. Blackbeard's demand functions for grog, ₁, and bread, 2, are (if his income and the goods' prices are such that he buys positive quantities of both goods): x = M+P₁+P₂ M+P₁ P2 and ₂ 2p1 x = M-P1-P₂ 2p2 (Aside: As an exercise, you can show that these are indeed the demand functions if Blackbeard's utility function is: U(x1, x2) = (x₁ - 1)(x₂ + 1).) Given Blackbeard's demand functions, which of the following statements are correct? (Note: Multiple answers may be correct.) If the price of grog, P₁, rises high enough (and nothing else changes), Blackbeard will stop buying grog, 1, completely. If the price of bread, p2, rises high enough (and nothing else changes), Blackbeard will stop buying grog, 1, completely. If the price of grog, P₁, rises high enough (and nothing else changes), Blackbeard will stop buying bread, 2, completely. If the price of bread, p2, rises high enough (and nothing else changes), Blackbeard will stop buying bread, #2, completely.

Answer rating: 100% (QA)

The detailed ... View the full answer